IRS Notification | Hacker News Reader

IRS Notification

support.coinbase.com

131 pointsbdcravens96 comments

This is an update to https://news.ycombinator.com/item?id=15815811 (Coinbase Ordered to Turn Over Identities of 14,355 Crypto Traders to the IRS) from 3 months ago.

I highly recommend that you do not commit tax fraud. Pay your taxes - not only the right thing to do, but because of the lack of anonymity provided by every blockchain save a few, it is trivial to track your trades.

You don’t want to go from mild-mannered software engineer to tax criminal, do you? Think about it hard. Government lawyers and regulators are indeed incentivized by metrics - the max number of pleas and convictions. They don’t care about your stories.

The smart move is to pay what you owe, and if you don’t like it, structure your affairs for the future to minimize taxes. But it’s very risky to lie about your past.

Additionally, tech industry workers have not exactly been worshipped by the press as of late. Expect a lot of backlash if you, an already highly paid knowledge worker, cheated to pay what taxes you dutifully owed. The press would not be kind to you, and they would not be in the wrong.

This is great advice, especially as the conviction rate (and prison rate) for tax offenses is pretty high: https://www.irs.gov/compliance/criminal-investigation/curren... Although note that if you ever can try to fight the IRS in another court (e.g., bankruptcy); it's the only time you'll have a fighting chance. But you really do have to be in the right -- if you're just avoiding taxes and they decide to prosecute, prison is not unlikely.

I guess this advice is for non-coinbase customers since the ruling removes the ability to choose.

To me, having to cut a big check to the IRS is the ultimate first world problem. I'd love to owe the IRS a million bucks because I made way more than that :)

Yup. I'm happier if I am paying more taxes, as it means I am making more money.

As an immigrant to this country it feels good to pay my taxes every year. It's the least I can do for everything this country has done for me and my family.

Yes, but I'd be even happier if I got to keep a larger percentage of that money.

> I'd love to owe the IRS a million bucks because I made way more than that

A lot of the people who owe big bills to the IRS didn't make any money at all, and have no way to pay it.

Can you elaborate more on this? You know you can also report losses to reduce taxes? Or do you mean that they spent their profits on non returnable expenses(e.g. A vacation)

I believe GP is referring to people exercising options.

From a business perspective, if you spend money on illiquid assets expecting to make a profit, say, short-term profit that doesn't materialize or will take longer than expected to materialize the business will still owe taxes on the value of those assets but you may not have the liquid cash to pay for those assets.

As an example, say your LLC buys a million dollars worth of round iPhone cases because you're 100% sure Apple is releasing a round iPhone before Christmas 2017. Apple comes out and says "sorry, we're pushing the release to Christmas 2018!"

Now, your company has 1m in assets, probably more by a fair market value of round iPhone cases because you expected to sell them for 10m, so now the value of your company has increased by some millions of dollars.

Now, say you bet 100% of your liquid cash on that (regardless of if that's a smart idea or not), how do you pay your tax bill?

You could liquidate your round iPhone cases to someone today, but, you'll lose a ton of money on them.

This isn't a 100% perfect example, in a lot of ways, but it does indicate a highly contrived example of ways in which you can have 0 free cash while having huge reportable income.

Or you buy $10,000 worth of Ethereum, and the value goes up to $100,000. Then you convert the Ethereum into Dogecoin, and your $100,000 worth of Dogecoin goes to $1,000 but you don't sell it before the end of the year.

Huh? You don't pay taxes on the estimated value of your assets. You would only pay taxes on your annualized profits. In your example, you would show your cases as assets, but you wouldn't book any revenue or profit until you started selling them.

And if next year, you only sell $1m worth of cases and you don't think you will be able to sell any more of the cases, then you write the rest off as a loss and would pay no taxes since you didn't make a profit.

Actually businesses can be forced to pay state or local tax on physical assets. It's called tangible property tax, and rules differ per jurisdiction. That said the irs doesn't do this and doesn't count unrealized returns.

Even in the case of tangible property tax, this would not apply. Tangible property tax refers to capital expenses like buildings, furniture, etc. Inventory would not be subject.

This example is very confusing. If you buy a bunch of stuff to sell and don't sell it, then there is no income to pay taxes on. If you sell and make a profit, you pay tax on the profit. If you lose money you don't have profits to pay tax on.

One example is that your parents pass the family business or farm on to you when they die, the tax man comes knocking and wants his 40%.

And the tax man says that family business is worth $10 million. You know you could never get that much money in a sale, but the IRS doesn't care. Have a fire sale and pay them the millions you owe in taxes.

It turns out you were only able to sell it for about how much you owe in taxes. So, they adjust the appraised value and lower your tax burden right? Nope. Pay up and you may need to kick in a bit of your own money to make up the difference. Your welcome, says the IRS.

This is when you fight the IRS in bankruptcy court -- it's your only shot.

>made way more than that

Well, not so fast. Depending on the way you earned that money and which state you lived in, you could very well end up paying more in taxes than you get to keep.

Plus it only takes somebody spiteful who missed out to rat you out.

On the other side of the coin, I'm actually going to offset some huge gains on my stocks by filing a loss for a few cryptos during the crash :D

I wholeheartedly agree with the premise. However, I disagree with "...blockchain save a few, it is trivial to track your trades.".

If coinbase does your buy/sell off chain than this is really more a matter of what coinbase knows/doesn't know and is/isn't willing to report. The transparency isn't asserted like it is with the blockchain which is public.

> Pay your taxes - not only the right thing to do

I find it stunning anyone can deliver a line like this as if the issue is quite simple, just a matter of greed vs. personal responsibility, of paying what is owed, etc, seemingly without a shred of doubt. How many deaths of Iraqi children is it that the US embargo is thought to have caused again? Isn't the federal government still grinding toward the 50th year of the drug war? "The right thing to do," it is vastly more complicated than that, and the older I get, the more it looks like when I pay the IRS, I'm feeding a machine that causes misery to others to avoid inconvenience to myself.

Your income is in large part due to the environment created and protected by the government, even the parts you find distasteful. If you feel guilty about that, you can donate your income to charity and deduct it from your taxable income.

The better response to this situation is to vote in a different government, not to beggar our nation through tax fraud.

If you don't like what our government is doing (and I'm with you on the examples you cite), put in the time and $ to make it different.

Tell that to Thoreau and Gandhi? https://en.wikipedia.org/wiki/Civil_Disobedience_(Thoreau)

I mean, I'm not advising anyone to not pay taxes either, but it's a protest tactic with a pedigree.

Honest question: how old are you? 20 years ago, I thought there was no way the drug war could continue. I thought the revelation of wiretapping in the AT&T datacenter would be the beginning of the end for illegal surveillance. I've given time and money continuously over that time, and watched the issues I care about most get worse. There seems to me to be no realistic mechanism for change. Do you really think that, in this situation, doing anything other than paying whatever the IRS demands is fraud?

Honest answer: I'm 68 years old.

I've seen the drug war, surveillance of US citizens (the two things you listed), the slide of America into oligarchy, and a host of other issues that I care about get worse, hardly believing it could be possible even as it happened. Yet here we are.

As a driver of change, withholding taxes doesn't seem to do much in our time. Didn't shorten our war in Vietnam. Didn't deflect the savings & loan crisis in the 80s & 90s, nor the financial crisis of 2007 - 2008. People who commit tax fraud become easy targets for Draconian civil and criminal penalties, and it's really hard to scale that strategy up to where it might be effective.

The IRS only has a right to demand what's legal. So I favor aggressive tax minimization (pay the absolute minimum the law allows), which is not tax fraud. I contribute my tax savings in hope of improving governance at all levels, and to other causes (shelters for battered women, etc.).

But I have to say, the rapid increases of regulatory capture, surveillance, and wealth concentration, along with the 2016 Presidential election result have eroded my optimism. Gerrymandering + electoral college = effective barrier to honest government. Like you, I don't see effective peaceful means of change remaining, those means having themselves been captured. It's not good, and I don't have answers at present.

"vote in a different government,"

There is extremely impractical. First the voting system is extremely antiquated, and second your average American is not terribly smart, and will tend to prefer to get "free" stuff from the government paid for by people making more money.

From the summons[1]:

"The Narrowed Summons “do[es] not include users: (a) who only bought and held bitcoin during the 2013-15 period; or (b) for which Coinbase filed Forms 1099-K during the 2013-15 period.” (Id. ¶ 2.) According to Coinbase, the Narrowed Summons requests information regarding 8.9 million transactions and 14,355 account holders."

Looks like the IRS is encouraging hodling /s

Seriously though I'm glad that the tax court reduced the reporting requirement to just people who likely have a tax obligation (bought and sold) than people who merely bought and hadn't sold.

[1]https://assistly-production.s3.amazonaws.com/75687/kb_articl...

Holding avoids triggering capital gains right?

Yes. You only owe taxes on the dollar (capital) increase in value (gains), calculated when sold.

Yes but this is related to the legal basis for the claim, just because there are people who may have committed fraud, doesn’t give the government carte blanche to request any more than they’re legally entitled to obtain.

"and held" must be interpreted as "and didn't move the bitcoin out of Coinbase." I don't otherwise see how Coinbase would know whether it was held or sold.

They profited or earned money and it wasn't declared when doing their taxes. People who should be worried are those that didn't follow the rules. What makes it interesting is that cryptocurrencies are very new and it might not have been obvious if taxes should have been declared at the time (you probably should have). If they declared or can show that they tried to declare then it's no big deal...

>They profited or earned money and it wasn't declared when doing their taxes.

Speculation -- how can any conclusion about whether a tax violation occurred, if the IRS doesn't even have the information about the people who even sold bitcoins? This effort is the start of that determination.

Couldn't the IRS look at the blockchain and ask for details about users associated with transaction IDs of substantial volume?

I imagine this is exactly what the IRS will do if it feels it has to.

https://www.irs.gov/newsroom/irs-virtual-currency-guidance pointing to https://www.irs.gov/pub/irs-drop/n-14-21.pdf

With the big question first:

Q-1: How is virtual currency treated for federal tax purposes?

A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.

Yes, but the memo you quote is fairly recent. Before that, the prevailing guidance seemed to be that bitcoin should be treated as currency, not property. So as of what date does this rule take hold?

The IRS specification on Bitcoin has been set for five tax years now, including for 2013.

https://www.coindesk.com/internal-revenue-service-treat-digi...

I wonder what the threshold is for the IRS. If I sold some coin and only made a couple dollars, is it even worth the effort? What about 100 dollars?

Pure speculation and IANATL, but it seems like ~$1000 is where the IRS starts caring about fraudulent activity.

I've had friends audited for not declaring cents of interest they earned when their landlords placed security deposits in savings accounts...

Wonder if there was something else that triggered it. Doesn't seem like it would be worth their time over that little, but then again IRS is kinda weird like that.

yeah, seems very strange. That said banks do report interest income from saving accounts usually. So maybe the total amount from their W2/1099s + interest income didn't match up and that triggered an automatic audit. They probably were in a fairly high income bracket too I imagine.

I call BS. Anything under 50¢ is rounded down to $0 by IRS's own accounting.

They give taxpayers two rounding options of which a given filing must consistently pick one or the other.

The first is to put whole dollar amounts on all the lines on all the forms, and to round those as you say. Even that one doesn't round all intermediate numbers used in calculations, only the lines on the form.

The other is to be precise to the penny.

Both are allowed by the official instructions, even if software like TurboTax Online always picks the first.

Pretty sure tax software rounds every entry (that means input data and "worksheet" numbers), not just the numbers on the final forms. Also there are no "intermediate" numbers in tax calculations as each step is always an elementary arithmetic computation (+,-,*,/).

However, if you do things by hand there is some ambiguity whenever you have a choice to bundle or unbundle accounts, because if you enter them separately, you've rounded before the sum, but if you enter one total, you are supposed to round after the sum. You can save a buck here and there if you want.

You don't have a choice about how to do it in many cases, though I think I know the example you mean which is valid.

One example of how preliminary numbers (a better phrase than intermediate) aren't rounded would be if someone has three Forms W-2 in a year, such as from three jobs. All three Box 1 amounts are added up unrounded regardless of whether you put a whole dollar wage total on Form 1040. If the three Box 1 amounts end in 35 cents, 40 cents, and 45 cents (just to pick a suitable example), you're going to show an extra buck of wage income than if you could round those cents away.

IRS guidance from the 1040 instructions:

"You can round off cents to whole dollars on your return and schedules. If you do round to whole dollars, you must round all amounts. To round, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1.39 becomes $1 and $2.50 becomes $3.

If you have to add two or more amounts to figure the amount to enter on a line, include cents when adding the amounts and round off only the total."

Tax advisor from Intuit just advised me the other day, "it doesn't matter" if I report a dollar or two of savings interest.

multiple times?

I that because the landlord filed a form but the tenant didn't file a form to match?

I’m not a lawyer or cpa, so would definitely recommend talking to one if you want more solid answers. My understanding is that the penalties are a percentage of how much you misrepresented your taxes. Different tiers for different types of violations. Something like 20% on small mistakes and 75% for fraud. Beyond penalties they can come after you with civil and criminal charges if you committed fraud.

Small mistakes may never trigger an audit, but audits can be random as well. If you’re audited they will find these mistakes. It’s much easier to claim negligence for small amounts than gross omissions. There probably isn’t a steadfast rule for when something would be considered fraud.

My advice, don’t knowingly omit things, even small amounts. I wouldn’t sweat if you accidentally missed a few bucks in the past. If it’s any significant amount I’d file an amendment. I believe you aren’t liable for penalties if you unknowingly made a mistake and amend a return.

How does one even correctly report these earnings:

In Canada there is a form called a T1135, i was filling mine out today :) This form asks for a few key things related to any securities you hold in foreign countries: 1) Max Fair Market Value, Current Fair Market Value, Grioss Income (I.e. rents extracted before expenses), Gain (loss) of any depositions.

Which country do I hold my asset in if I purchase bitcoins? Are they Canadian or foreign? Does it depend where they are kept? It doesn't in the case of stocks, even those on the NYSE but for Canadian corps do not fall under this reporting requirement, and inversely those on the TSX for US companies do fall under this requirement! So what nationality are bitcoins and all other crypto for that instance?

You need to fill this out if you have > $100,000 CAD worth of foreign assets, once for each country you hold assets in (regardless of purchase price, we're talking max fair market value).

The fee for not filing this form is a flat $2,500 + interest of any taxes owed.

The question this raises for me, if someone bought $1000 worth of bitcoin in 2012 and retained them until today, they easily have over this limit. I am sure there are a fair few people that will get messed up here. I'd love for governments to provide clearer guidance here to prevent upsets later.

Also, T1135's are almost impossible to file correctly. Seriously, they're a stupid form. IMO the CRA should just ask for a report of all your trades and the relevant countries (assuming we can answer the country question, i suppose?) and leave it there - and they do in the form of a T5008 or you can report it under the Capital Gain / Loss section (I think it's called Schedule 3).

I guess what I'm saying is this: It's effing hard to report correctly, even when you try. In my life, I've spent more on tax lawyers than I have on cars. I feel like I do everything I can, I feel like I've been good...but i sometimes get kept up late at night worried I messed up and no one will believe it was an honest mistake.

It’s the same as any other profit you might make through currency speculation. If you can’t figure out the relevant corns, maybe you shouldn’t be trading in these markets in the first place?

well good news isn’t i don’t haha! I guess that makes more sense, but even in currency speculation there is a clear relationship to a country. If that doesn’t impact it, then i guess that is reasonable...i still hate t1135s!

I'm not a tax preparer or an attorney. That said, As a US citizen I've always reported capital gains (or losses) on Schedule D when filing my taxes. I typically have the Schedule D and a an attached list of gains and losses.

If you bought coin and are still holding it, you don't owe any tax (you aren't taxed until you convert it into dollars). When you sell it, then the gain is the difference between what you paid for it and what you sold it for (less any transaction fees).

Its fairly straight forward.

That said, if you have a gain from buying something and reselling it but that sale is never reported to the IRS for any other reason (in my case the bank holding my IRA reports the gains to the IRS anyway), then there might be the temptation to just "forget" about it. That probably seems harmless except that something can happen (like the person who bought your coin mentions they bought it from you) and if the IRS finds you knew something and didn't report it, they come back to you and take what they are owed.

I haven't done anything with cryptocurrencies but when I filed my taxes using turbo tax a few weeks ago. They did ask the question regarding it and I'd assume theyd have also guided you in the right direction.

I know there are lots of tax helper programs out there but I thought like 95% of people have someone else do taxes or use some forms of automated tool to assist them. I'd hope all these tools ask the question and prompt a direction

Ooof — for folks looking for a solution to their crypto tax problems, check out a service like https://www.cointracker.io (full disclosure: I'm working on this product)

I would use your product in a heartbeat if you supported importing from NiceHash.

Awesome — will let the team know :)

This is exactly what I was looking for.

Just wondering, I see the Tax Summary. It seems to be all that I would need to fill out my taxes, right? What does generating the 8949 form give me?

You can use the transaction history CSV generated to report your taxes yourself (just requires manual effort on your part). The Form 8949 is the actual IRS Form for Capital Gains and Losses, and CoinTracker actually completes the form based on your preferred accounting method based on your transaction history. Feel free to ping feedback@cointracker.io for more info.

I guess this is going to be a thread where tax victims soothe their recently-bruised egos by voicing support for the persecution of others.

Please, don't be the crab bucket.

(But yes, it also isn't very bright to reveal one's identifying information to eg Coinbase and not expect this to happen. /nofriends)

True but lets take it as punishment for not voting with feet before. Get out while you can, its only going to get worse.

Where can one go to avoid taxation? I suppose it's theoretically possible in terra nullius places, but I don't think I could talk the wife into moving to one of them.

The aim would be make govts scared of losing tax dollars and get more bang for buck. So switching even state would work.

Federal taxes apply nationwide.

There are a lot of high QOL countries with specialised tax systems that don't tax all income.

However, since the US government taxes your entire income above a certain threshold globally, there's not much you can actually do to optimise taxes.

Nearly all non-US citizens can move to a country that does not tax capital gains (on crypto) to avoid tax.

Coinbase may or may not send you a 1099 form.

"Coinbase provides Form 1099-K to certain business customers and GDAX customers that have received at least $20,000 cash for sales of virtual currency related to at least 200 transactions in a calendar year." Coinbase Tax FAQ

I feel like I don't know enough to care about this. I suspect many people will be upset about it but I just don't see it. Is what the IRS asking for any different from the kind of access they already have to traditional banking and trading accounts?

This is really no different than the docs/info your brokerage would furnish at the end of the year to the IRS (1099-INT, 1099-DIV [or both together on a consolidated 1099], Form 5498).

It is. Coinbase has to consider all withdrawals for these purposes as sales, IIRC. It's not just reporting gains

The IRS guidance has been available for some time:

https://www.irs.gov/newsroom/irs-virtual-currency-guidance

https://www.irs.gov/pub/irs-drop/n-14-21.pdf

https://www.irs.gov/pub/irs-pdf/p544.pdf

The problem is, unlike traditional exchanges or financial institutions, people think cleverness is in order and regulation won't catch up to them. Follow the guidance, pay your taxes due, and if in any doubt about your situation, consult a tax professional.

EDIT: Hoo boy are cryptocurrency taxes scary af. I'm still of the mind Coinbase should provide all of the reporting, but the taxable/realization events are going to be tricky.

Examples:

* "Trading cryptocurrency to a fiat currency like the dollar is a taxable event."

* "Trading cryptocurrency to cryptocurrency is a taxable event (you have to calculate the fair market value in USD at the time of the trade; good luck with that)."

* "Using cryptocurrency for goods and services is a taxable event, i.e., spending cryptocurrency is a “realization event.” You have to calculate the fair market value in USD at the time of the trade; you may also end up owing sales tax."

Source: https://cryptocurrencyfacts.com/2017/12/30/the-tax-rules-for...

I'm not sure what your comment has to do with mine... I just know that to conservatively report, Coinbase includes withdrawals that are still in cryptocurrency as sales. You see why that might be a tax issue I imagine

Yes, the initial request was a fishing expedition in direct contradiction of IRS rules on the matter.

Here's prior discussion in lieu of a proper citation [0].

[0] - https://news.ycombinator.com/item?id=13007310

The only unique thing is that its bitcoin. They'll do their own form of discovery in other investigations.

I think you are right, by law any other security or commodity or group would normally disclose any known profits or interest made.

It's a capital asset and you must disclose any realized gains or losses on a cost basis. And long term and short term gains rates apply.

The only difference here is that unlike a stock, I can go sell bitcoin on the street and it would be hard to trace.

IRS will have to go after exchanges or somehow get savvy enough for people to post proof of ownership on addresses to show they didn't liquefy their holdings or deal with those who said it got stolen...etcetera

I mean, I understand people don't like paying taxes, but laws in 2014 made it pretty clear you need to claim for crypto in the US. Some will argue that the feds don't make your local coin shop file if you pick up silver all the time in small batches, but if you went and sold 50k in silver to the shop, you better be ready to claim it on your taxes. (unless it sank on your boat of course)

It's general property, and you don't have to report pure losses AFAIK. Otherwise everyone will have to report the loss basis of stuff they sell for a loss on craigslist.

Correct but slightly off.

Although the IRS considers it property, it also allows capital gains and losses on such due to its widely fluctuating price. This means filing cost basis and net gross and loss when the crypto was spent, sold, created (mined), given to another person, etcetera.

here is document Notice 2014-21. In which conditions for crypto IRS conditions are explained in an easy to understand fashion. It's widely interesting to me. https://www.irs.gov/pub/irs-drop/n-14-21.pdf

I filed for gains for three years, losses for one year. But im out of it, everything is to hot for me.

more info on filing losses. It is the same as declaring losses on stocks pretty much. Cost basis when received, bought, created, or given to you on commerce and then consolidation when that crypto is sold, traded in commerce, etc.

http://fortune.com/2018/01/29/bitcoin-taxes-cryptocurrency-i...

https://medium.com/the-litecoin-school-of-crypto/how-to-tax-...

In traditional accounts the brokerage would send a 1099 form to the customer and the IRS. But Coinbase doesn't do that for some reason, so the IRS is suing them to get the information. And for some reason the IRS initially asked for more information than they need, so there was some legal wrangling to narrow the information. It's like both Coinbase and the IRS are trying to make things more complicated and scary.

I had kinda thought that providing 1099 to the IRS would've already been a necessary condition of Coinbase being able to get a financial services licence, or is that not usual?

They are both trying to make things more simple, for themselves.

In the end, Coinbase still had to produce the data and they spent a ton of lawyer hours. I don't think they simplified anything. Maybe they were trying to set some kind of precedent that they don't have to assist in taxes in any way.

An interesting thought experiment is if it is possible to create some sort of Bitcoin derivative from private keys and use it as a means to exchange Bitcoin and avoid any sort of rules used for taxation of cryptocurrencies.

Ownership of bitcoin is the ownership of a private key which is simply a 256 bit number that is used in ECDSA for signatures. What if I transform this number into some other form using steganography and embed it in an image, or maybe I just shift it left 100 bits and claim it isn't a valid Bitcoin key and hence I own no Bitcoin. Is ownership of the resulting medium considered to be ownership of Bitcoin? Can I trade it without it being considered cryptocurrency? Can I own it without it being considered to be owning Bitcoin and later convert it back and "acquiring" new bitcoin avoiding capital gains?

I wouldn’t try to get cute with the IRS. It usually doesn’t turn out well.

In the US, when existing law doesn't determine what will happen in a particular case, a judge uses his or her judgment, and creates new law. Since most judges aren't idiots, they aren't going to be tricked by this sort of scheme.

Edit: I don't even think this would require new law. You presumably don't get to claim you don't possess the contents of a safe because you wrote the combination down in code or backwards or something.

Judges do not create new law. They interpret existing law and decide if a potentially new use case can be considered to be covered under existing law. If so, they make a ruling to that effect, and depending on jurisdiction and other factors, that ruling may become precedent that other courts can/will follow. If not, they dismiss the case, and it's up to the legislature to make a new law governing this use case, if they so choose.

Having said that, I agree that judges aren't idiots, and they can often spot when someone is trying to be creative in order to circumvent existing law. The IRS also has pretty broad latitude in determining what falls under existing tax law and exactly how, and the courts take a dim view of people who are trying to evade taxes.

Judges do also make new law even where existing statutes and precedents don't give an answer to follow. As one of many examples, California's courts invented our current idea about strict product liability for manufacturers. Statutes came second.

This is part of our longstanding common law tradition, going back far beyond the prominence of statutes.

Judges do not create new statutes, however in common law jurisdictions they do create new law.

Other systems might work the way you described, but in the US (and England, whose legal tradition the US inherited), judges certainly do make new law.

The IRS has no definition of "Bitcoin". To them, cryptocurrencies are just generic "property", like houses or art collections or shares of stocks. If you sell an asset, and receive more for it than you paid for it, you have a capital gain that you need to pay taxes on. For details, see https://www.irs.gov/pub/irs-drop/n-14-21.pdf.

It is all too common for young, bright, technical people to think the law works like mathematics and to try to find logical or technical reasons why they should be found not guilty of crimes. Most of them get shipped off to prison. This is doubly true when you're up against the IRS. Don't be that guy.

You can't fold stock certificates and claim you're trading paper airplanes.

Bitcoin or not, if you bought it with money and sold it for money you have a gain or a loss, in money. And if you bartered it for non-money tax laws about barter apply.

Reply on news.ycombinator.com